Motorola, Inc.: Strategy of Mobile Devices Division Divestiture

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I. Introduction
The January 2008 announcement by Motorola, Inc. that it might spin off its Mobile Devices division followed years of declining market share in the mobile phone industry. After the wild success of the company’s “RAZR” mobile phone in 2004-06, Motorola failed to retain market share as Apple’s iPhone claimed “must-have” status and traditional mobile phones became increasingly commoditized. Even with the Mobile Devices division’s recent poor performance, it is something of a shock to learn that the mobile phone industry’s first mover is planning to divest itself of mobile phones. This paper discusses whether divestiture is an appropriate response to the current mobile phones industry environment.

A. Company History
On September 25, 1928 Paul V. Galvin and his brother Joseph incorporated Motorola`s founding company, the Galvin Manufacturing Corporation, in Chicago. In 1930, Paul V. Galvin created the brand “Motorola” for a car radio (“motor”: motorcar and “ola”: implied a sound).

The company spent years developing portable two-way radio systems, which led to Motorola’s vision of personal portable communications. In 1940, the company developed the Handie-Talkie SCR536 AM portable two-way radio, which was used on the World War II battlefronts. The first FM portable two-way radio was created in 1943 for the U.S. Army Signal Corps and the following year it was used for commercial purposes.

A new technology provided the opportunity for Motorola to help people to communicate. It was the car radiotelephone industry. In 1946 the radiotelephone service began in the U.S., and the company produced mobile telephones in cars called “car phones”. The popularity of these phones grew, but with limited frequencies available, car phone systems allowed few calls at the same time and there were some problems with interference.

The U.S. Federal Communications Commission (“FCC”) proposed a solution for this problem. It was to allocate frequencies in the 800-900 MHz range for a new technology. Geographical areas would be broken into small adjacent cells and many more car phones could be used at one time. A network would track users as they moved through the network and automatically switched their calls as their location changed. Motorola’s engineers had a vision after they recognized the potential of cellular technology. They envisioned a phone that could be at hand. Motorola’s idea was to create a portable wireless phone and create the infrastructure and system to support it. The company was challenged to create the first portable wireless cell phone. Motorola’s industrial designer director, Rudy Krolopp and his team designed the shape of the phone. After days of work they had a winning design.

They started working really fast since they had a deadline to present the phone to the FCC commissioners. Designers and engineering teams worked together. The engineers’ challenge was to make the electronics small enough to fit in the handset of Krolopp’s design. Since Motorola had the two ways radio and semiconductor experience, the company already held patents on, and manufactured, much of the basic electronics needed for a portable phone system.

In 1947 Galvin Manufacturing Corporation became Motorola, Inc. In June 1955 Motorola introduced a new brand logo, the “M” insignia; the two aspiring triangle peaks represented the progressive leadership-minded outlook of the company.

Motorola produced the DynaTAC (Dynamic Adaptive Total Area Coverage) portable phone prototype by February 1973. The next challenge was to design a commercial, large-area system that would enable the portable phones to operate. The DynaTAC system required phone calls to be switched from cell to cell as users traveled. In 1977 the FCC granted a developmental license for a Motorola Dyna TAC cellular system in the Washington, D.C., and Baltimore, Maryland metropolitan area. The world`s first commercial handheld cellular phone DynaTAC 8000X...
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